Quandaries and Quagmires: Conflicts of interest in advising and opining

By William Wernz posted 12 days ago

  

There is a surprising gap in the law and literature about conflicts of interest.  Lawyers frequently provide advice and render opinions, both formal and informal.  However, leading authorities generally do not address when these legal services create a “directly adverse” conflict.  Advising and opining is not mentioned in the thirty-five comments to the current client conflict rule.[i]  The Office of Lawyers Professional Responsibility devoted an entire article to directly adverse conflicts, but did not mention advising and opining.[ii]

A conflict arises when a law firm represents one client “directly adverse” to another.  Rule 1.7(a), Minn. R. Prof. Conduct.  Although the best example of a directly adverse conflict is advocating for one client against another client, such conflicts also arise outside of litigation, as in negotiations, even friendly negotiations.  For directly adverse conflicts, the subject matters of the representation and the adverse action need not be the same or even related.

A spectrum of types of advice and opinion may be examined to identify which services are directly adverse.  The most obvious direct adversity is found in what can be called “battle planning.”  Two cases involving Minnesota firms are illustrative.

In one case, a Minnesota lawyer was publicly reprimanded for helping a client prepare for eminent domain proceedings with Hennepin County.  The lawyer advised the client on how to develop strategies to maximize the value of the site for eminent domain purposes.  Increased value would produce increased cost for the County, but the County’s interest was in low cost acquisition. The lawyer knew that his firm represented the County on other, unrelated matters. [iii] 

In a second case, rendering patent opinions involved directly adverse interests in the form of “battle planning.”  The conflict arose in the merger of two law firms (“BT” and “Lee”).  Lee’s conflicts database was not complete and integrated, leading to an unrecognized conflict produced by the merger. BT represented A on patent matters. Lee represented B on patent matters, including a dispute with A.  However, the Lee firm’s conflict records did not include A as an adverse party.  Shortly after the merger, the Lee alumni (now BT lawyers) wrote three battle-planning letters to B about B’s products and A’s patents.  The letters opined to B regarding A’s patents, B’s non-infringement, as well as potential litigation arguments and defenses.  BT belatedly recognized the conflict and withdrew from both representations.  In the A v. B litigation, the court found conflicts in the Lee firm lawyers’ opinions and ordered various measures of relief for A.[iv]

Does direct adversity always arise when a lawyer advises one client vis a vis another client?  An ABA opinion at least suggests such categorical adversity.  “There may be direct adversity even though there is no overt confrontation between the clients, as, for example, where one client seeks the lawyer’s advice as to his legal rights against another client whom the lawyer represents on a wholly unrelated matter.”[v]  But are all opinions vis a vis another client “against” the client?  It seems not.

The conflict-checking practice of good lawyers in two fields helps distinguish between opinions that involve conflicts from opinions that do not do so.  First, consider a real estate lawyer who is rendering a title opinion.  The real estate records identify scores of parties who once had interests in the property.  Among the records is a mortgage in favor of Wells Fargo granted in 1880 and satisfied in 1894. Although the lawyer’s firm now represents Wells on other, unrelated matters, the lawyer would not have a directly adverse conflict in rendering a clean title opinion.  The opinion would at least impliedly include that Wells now has no interest in the property and hence there is no conflict.  Conflicts are, after all, conflicts of interest.  Clients might appear in a nominal or pro forma in a matter without causing a conflict.

Similarly, in trademark opining, some marks that appear in an initial search will clearly not be infringed by the proposed mark. The holders of these other marks have no cognizable interest in whether the proposed mark is used. If direct adversity were found as to every mark identified in an initial search, the cost of conflicts checks and waivers would be disproportionate to customary fees.  Again, where there is no interest, there can be no conflict of interest.

Sometimes parties claim an interest in a matter, even though, considered objectively, there is no interest.  In such situations, the lawyer normally should regard the client’s claimed interest as an interest of sorts, and therefore as a claim that may create a conflict of interest.              

As in many areas of legal ethics, the subject of advising and opining conflicts includes a grey zone.  In the middle of the spectrum, different ethics authorities may disagree as to whether certain opinions are directly adverse. Again, two examples will illustrate.

First, a lawyer (L) may be asked by client A to explain the terms of a contract between A and B, where L’s firm represents B on unrelated matters. A is seeking understanding and clarity.  A is not seeking to take advantage.  In my opinion, explicating a document whose meaning seems clear, is ordinarily not directly adverse.  But there can be a slippery slope, by which explication verges over into advice on taking advantage. Providing analysis of a document with a view to advancing one client’s interests at another client’s expense is directly adverse.  ABA Opinion 05-434 appears to take a more categorical view than mine.  The Opinion states, “a lawyer would be precluded by Rule 1.7(a) from advising a client as to his rights under a contract with another client of the lawyer . . . .”

Second, opinions are sometimes rendered to third party non-clients at a client’s behest.  Rule 2.3 contemplates such evaluations or opinions.  The third party is regarded as the beneficiary of the client’s request, but the third party is not regarded as a client.  Is the third party an adverse party for conflicts purposes?  It depends.  If the opinion is not negotiated, but “straight up,” it may well be that the interests of the third party and the client are aligned.  If the third party and the client both regard an objective legal opinion as in their interests, the opinion may not be “directly adverse.”

Finally, consideration should be given to how conflict waivers function regarding advising and opining conflicts.  In general, clients are much more likely to give informed consent to conflicts where (1) litigation is not involved; and (2) the lawyer rendering services to the client is not the same lawyer who will render services that are directly adverse to the client’s interests.

However, it is frequently problematic to request a conflict waiver for an opining conflict.  Opinions are often rendered in matters involving competitors.  Competitors often do not want their counterparts to know of their activities.  Seeking a conflict waiver regarding an opinion on whether a contemplated product or trademark would infringe on a competitor’s intellectual property rights involves disclosing the product or trademark.

A “prospective waiver,” or “consent to future conflict” (as it is called in Rule 1.7 comment 22), is an informed consent to a conflict that has not yet arisen. In comment 22, the important factors for prospective waivers include the specificity of description of future adverse matter, the degree and nature of adversity, the subject matters’ relations (or lack thereof) of the relevant representations, the sophistication and experience of the client, and whether the client is independently represented.

 Clients who engage a law firm only on one or a few matters are often willing to give prospective conflict waivers where (1) the firm will not litigate against the client; and (2) the subjects of the representation and the future, adverse matter are unrelated; and (3) the lawyers who provide services for and against the client are different. 

The enforceability of non-litigation prospective conflict waivers normally does not come into question when the conflict arises from advising or opining.  The adverse advising or opining is not disclosed to the party who has given the waiver.

Advising and opining conflicts are discussed further in my free, online treatise, Minnesota Legal Ethics, found on the MSBA website.  Topics such as “materially limited conflicts” and “reasonably limited scope of representation” are important ethics issues related to advising and opining.  These topics are not addressed here but are addressed in the treatise.


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[i] Only three examples of directly adverse conflicts are given in Rule 1.7’s thirty-five comments—acting as an advocate against a client, cross-examining a client in certain circumstances, and negotiating a sale. Rule 1.7 cmts. 6, 7. Beyond such clear applications of the directly adverse principle, there is much uncertainty.

[ii] Martin Cole, Direct Adversity Conflicts, Bench & B. of Minn., Oct. 2010, at 12.

[iii] In re Savin, 780 N.W.2d 927 (Minn. 2010).

[iv] Andrew Corp. v. Beverly Manufacturing Co., 415 F.Supp.2d 919 (N.D. Ill. 2006).

[v] ABA Comm. on Ethics and Prof ’l Responsibility, Formal Op. 05-434 (2004) (emphasis added).

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